Just a reminder: QE3 will work just as well as QE1 & 2

posted at 12:01 pm on September 21, 2012 by Ed Morrissey

It comes as no great surprise that Rick Santelli isn’t a big fan of the latest round of quantitative easing. The CNBC analyst tells Pimco chief Mohammed el-Arian that the QE3 will hammer retirement plans and the most responsible savers, and won’t solve the problem that the Fed wants to address — joblessness. Santelli has a lengthy rant about government policies that push greater central control and its interlocking effect on the Fed’s inflationary policies, but mostly he tells el-Arian that it’s not going to work:

Earlier, el-Arian admitted that the QE3 now looks like a Fed vehicle to explicitly introduce inflation as a last-ditch effort to generate some growth even as it degrades assets. Calling it a “reverse Volcker,” the Pimco chief offered some support for the program, but noted that the Fed was now in experimental territory, and that future generations would have to clean up the mess:

The Federal Reserve and Chairman Ben Bernanke not only are willing to tolerate inflation but actually are trying to create it, with a “mess” left behind for their successors to clean up, Pimco’s Mohamed El-Erian told CNBC.

The reason, the Pimco CEO said, is that the risks outweigh the rewards as the central bank tries to stimulate an economy that still is foundering three years after the financial crisis recession ostensibly ended. …

But critics charge that the balance sheet expansion, which will go well past $3 trillion, is causing inflation. Former Fed governor Kevin Warshtold CNBC last week that the Fed will have a difficult time finding an exit from the years of QE programs, a point on which El-Erian agreed.

“This is true for all central banks — the (European Central Bank), the Fed, the Bank of Japan, the Bank of England. We are so deep into unfamiliar territory, so deep into experimental mode, that we don’t know what the consequences will be,” he said. “Whoever comes afterward will have to clean up the mess.”

Former Morgan Stanley executive Stanley Roach told CNBC today that future generations would not only have to clean up the mess, they’d still have to solve the problem — because QE3 will work just as well as the first two voyages on paper printing did:

The U.S. Federal Reserve’s latest round of quantitative easing is not going to bring down unemployment nor put more money into the consumer’s hand, according to Stephen Roach, senior fellow at Yale University.

Roach, the former non-executive chairman of Morgan Stanley Asia, told CNBC on Friday that it was going to be “exceedingly difficult” for the new policy measures to bring the jobless rate down.

“I hobnob with all these macro theorists at Yale, they don’t see any evidence of a linkage between liquidity injections in the mortgage-backed securities industry and the labor market distress in the U.S.,” Roach told CNBC Asia’s “Squawk Box”.

CNBC noted the bet placed by the Minnesota Fed’s Narayana Kocherlakota, who had previously opposed another round of quantitative easing, but missed part of the deal:

The Minneapolis Fed President Narayana Kocherlakota added this week that the central bank should vow to keep rates near zero until the jobless rate falls below 5.5 percent.

Actually, Kocherlakota said it should continue until unemployment dropped to 5.5% or inflation hit 2.25%. QE3 may well drive that inflation number up long before we get past the mid-7s on unemployment, let alone start increasing the civilian population percentage rate from its 31-year low. Far from being an endorsement of Ben Bernanke’s QE3, it looks more like a short leash.

Inflation is going to be a major problem for President Romney when the economy gets jump started, and, believe me, the donks media are already anticipating being able to crow about inflation under his watch when the time comes.

“Is there anyone out there that has read about, or even heard about the depression of 1920? No, that is not a type-o. We all have heard about the 1929 depression, the one that lasted for over 12 years, but not too much is known about the depression we had in 1920, which lasted from January of 1920 to July of 1921. There are many that say it started as severe, or more severe than the depression of 1929. So why did the depression of 1920 last for 18 months, while the depression of 1929 lasted for over 12 years? Well, for one thing we had a Republican President that believed in the free market system, his name was Warren Harding.

President Harding did little in the way of Government interference, he did it by cutting Government and expanding the tax base. He immediately put together a committee which consisted of members of industry, banking and labor to come up with a solution. They came up with a plan, which was supported by the Republican Party and conservatives and generally opposed by the Democratic Party and liberal progressives. By the way, President Harding was involved each time the committee met, he wasn’t playing golf, traveling around the country on fundraisers, or visiting Hollywood celebrities. The point is, Government participation was small, capitalism and the free market took care of the rest…”

Retired seniors for years now have not been able to collect any interest from their savings, all the QE’s have devalued what little money we’ve saved, can’t even get a job at McDonalds. They say Obama is FOR the Poor? B.S.
Obama and Bernanke are FOR MAKING you poor.

Buy things that people cannot live without. Energy, Food, Oil, and so forth. Their values will track closely with the inflation. I am not an expert, but this is where big money goes to defend itself… that and gold…

Retired seniors for years now have not been able to collect any interest from their savings, all the QE’s have devalued what little money we’ve saved, can’t even get a job at McDonalds. They say Obama is FOR the Poor? B.S.
Obama and Bernanke are FOR MAKING you poor.

Herb on September 21, 2012 at 12:12 PM

The 0% started under Bush, soo too did the QE stuff. Its not just Obama that hates you… It is all people who are progressive in nature… as Romney proclaims himself to be.

That is just one egg. Not a good bet… Spread the money. Copper, and other industrial things are not great bets, in recession their value can plummet. Stagflation and all… But companies that feed people, that create energy which no one will try to go without and such all will hold reasonably close to the inflation rate, or at least catch up a year or two down the road… No one NEEDs gold, its a luxury, but is a good lace to have a part of your savings.

When things really go in the toilet, the government will try to seize as much as they can to keep things going for even a little while. That will probably include 401k’s, IRA’s, etc. I think they will seize the records of all the bullion selling companies and use those to seize the gold bullion people have bought through them.

I’ve said this before, but I think people should have some small denomination, common date silver coins. Buy they for cash at a coin store or auction. Don’t give them your name. If you need to buy a scak of potatoes, a few silver coins will get you what you need most likely. How are you going to break a gold eagle? (assuming you can keep it.)

Extremely high inflation will probably create a barter economy. Have a stock of items that people will either want or, better yet, need.

This is simply a way to funnel tax payers money to large banks. Solyndra without the solar panels.

pat on September 21, 2012 at 12:33 PM

I have been saying this since Bush… Its all a circle jerk… But it also has a second reason… Once they sell the assets to the FED then they have money that needs to be making money… They buy US Treasuries… Then the FED buys those treasuries, giving them a one time instant bonus… rinse and repeat.

The fed is an enabler of evil, or immorality to use a more secular term. The fed allows the government to literally steal our children futures, turning them back into serfs and slaves before many have even been born.

The fed is evil! They and the elite crooks and cronies at the top that feed off the fed like crack addicts are the biggest enemies of the American Constitution and Bill of Rights on earth today.

What China and Russia could never do from outside, the Fed is doing from inside. They are turning our children into indentured servants who will have to slave away the rest of their lives trying to repay the debt of immoral people. Whether they wear chains is irrelevant, their lives will be diminished regardless.

People who vote for D and R fed supporters are waging a generational war against the young, whether they are aware of it or not they are enablers. The lesser of two evils is the evil that has been destroying America from the inside all these years. More of the same is only going to make it worse.

Private sector has done its part – balance sheets cleaned up, expenses cut, profits at record highs. Fed has done its part – money is cheap, and they are ready to lend. Now it’s up to the pols to get their act together and fix the fiscal situation. We’ll see if they’re up to it …

Romney needs to speak of this but I doubt the average person knows what QE 1/2/or 3 means. It is the same with sequestration. The folks need to hear in words they understand. Most are not paying close attention!

The following are 10 shocking quotes about what QE3 is going to do to America….

#1 Ron Paul

“It means we are weakening the dollar. We are trying to liquidate our debt through inflation. The consequence of what the Fed is doing is a lot more than just CPI. It has to do with malinvestment and people doing the wrong things at the wrong time. Believe me, there is plenty of that. The one thing that Bernanke has not achieved and it frustrates him, I can tell—is he gets no economic growth. He doesn’t do anything with the unemployment numbers. I think the country should have panicked over what the Fed is saying that we have lost control and the only thing we have left is massively creating new money out of thin air, which has not worked before, and is not going to work this time.”

#2 Peter Schiff, CEO Of Euro Pacific Capital

“This is a disastrous monetary policy; it’s kamikaze monetary policy”

#3 Michael Pento, The Founder Of Pento Portfolio Strategies

“This is the nuclear option for them. This is a never-ending weapon that is being fired at the middle class”

#4 Donald Trump

“People like me will benefit from this.”

#5 Economist Anthony Randazzo

“Quantitative easing—a fancy term for the Federal Reserve buying securities from predefined financial institutions, such as their investments in federal debt or mortgages—is fundamentally a regressive redistribution program that has been boosting wealth for those already engaged in the financial sector or those who already own homes, but passing little along to the rest of the economy. It is a primary driver of income inequality formed by crony capitalism. And it is hurting prospects for economic growth down the road by promoting malinvestments in the economy.”

#6 John Williams Of Shadowstats.com

“That’s absolutely nonsense. The Fed is just propping up the banks.”

#7 Marc Faber

“I happen to believe that eventually we will have a systemic crisis and everything will collapse. But the question is really between here and then. Will everything collapse with Dow Jones 20,000 or 50,000 or 10 million? Mr. Bernanke is a money printer and, believe me, if Mr. Romney wins the election the next Fed chairman will also be a money printer. And so it will go on. The Europeans will print money. The Chinese will print money. Everybody will print money and the purchasing power of paper money will go down.”

#8 Mesirow Financial Chief Economist Diane Swonk

“I think this will end up being a trillion-dollar commitment by the Fed”

#9 Federal Reserve Chairman Ben Bernanke

“I want to be clear — While I think we can make a meaningful and significant contribution to reducing this problem, we can’t solve it. We don’t have tools that are strong enough to solve the unemployment problem”

#10 Credit Rating Agency Egan-Jones

“[T]he FED’s QE3 will stoke the stock market and commodity prices, but in our opinion will hurt the US economy and, by extension, credit quality. Issuing additional currency and depressing interest rates via the purchasing of MBS does little to raise the real GDP of the US, but does reduce the value of the dollar (because of the increase in money supply), and in turn increase the cost of commodities (see the recent rise in the prices of energy, gold, and other commodities). The increased cost of commodities will pressure profitability of businesses, and increase the costs of consumers thereby reducing consumer purchasing power. Hence, in our opinion QE3 will be detrimental to credit quality for the US….”

He said it in private — not knowing that he was being recorded — and before big donors, who, generally, support the Fed’s policies. QE is a significant reason for why the stock market is where it is. Further, Romney called and BEGGED Bernanke not to launch QE3, which is more than can be said for Obama or even Johnson, to be knowledge.

I am not Romneybot, but he has said that he would fire Bernanke. You talk about “two evils.” In this situation, one presidential candidate, who actually stands a chance of being elected, would remove the evil known as Osama bin Bernanke, which is more than can be said about the other, who you seem intent on reelecting.

Romney needs to speak of this but I doubt the average person knows what QE 1/2/or 3 means. It is the same with sequestration. The folks need to hear in words they understand. Most are not paying close attention!

AnnaS on September 21, 2012 at 1:11 PM

He has said Beernake will be gone… Then again, replaced by who? Just another crony capitalist, and Romney will pick one of the best crony capitalists available. The money printing will not end, it will just change to soemthing that appears better managed.

Democrats harshly criticize the “trickle-down economics” of Republicans (even though no Republican ever expressed that idea), where, as I understand it, Republicans let people who earn money keep it. (Horrors!) Here the Democrats have their “solution” which is to flood the banks and Wall Street and mortgage markets with imaginary cash in the hope that the flood of money will trickle down to the middle class. Of course, what it does instead is destroy the savings and retirements of the middle class and raise their cost of living while making bankers and investment firms happy since they get the money first and get to buy up hard assets before its value in the economy goes down. That seems like the worst kind of “trickle down” you could possibly imagine and shows clearly which party really is supporting the fat cats at the expense of the rest.

But up until a few weeks or months ago he praised Bernanke. Romney is a Keynesian who supported TARP and a lot of the bailouts. That’s part of Romney’s actual record which, unlike Romney’s words, actually matter.

Why don’t you research before you spout off. QE1 starred in Sept of 2008 by a “withdrawal” of $500M CASH from an Atlanta bank account, which Fed had to cover. That’s when that same Bernanke told Bush there is absolutely no way around it and they “just had to do QE I”.

Now, tell me, who in USA has $500M in cash sitting around to get this whole scenario started and to vastly alter the upcoming elections? Look for a last name that starts with S, you’d be on the right track.

Yes, I can fault Bush for listening to the same cabal of crooks who are now more than happy to help Hussein to completely destroy what’s left of the economy, they were already working with liberals at that point. But then again, our “brain trust” at the time, McLame and Co., were all complicit in this stupidity having absolutely no idea how financial markets work. Not that they know any more today.

And didn’t Paul Ryan go along with both QE I and QE II? My memory could be failing on this since you guys regard Ryan as the financial brain trust in Congress (sorry for sarcasm, Ryan needs to brush up on simple math to gain any respect, IMO). Only a complete idiot in math can present a $400B savings in his proposed budget as ACHIEVEMENT when actual deficits run in the $1.1 – 1.4Trillion territory, I guess someone needs to finish second grade to see the vast difference in the numbers, doesn’t look like Ryan is too upset with running a $700B – $1TRILLION deficits if his proposed budget is accepted. Math genius! I tell you…

Even with the QE I Bush left just a $460B deficit for 2008, definitely manageable by any measure. And unemployment of %5.5.

So, you’re also saying that stock market is where it is by artificial manipulations? Economy is almost dead, federal budget deficits and debt are skyrocketing as will inflation in the next few months, profits are barely there and only there for some sectors of economy, but stock markets are going up and up and up…

Because an improving economy is detrimental to his campaign. Who do you think he will replace Beernake with? If he has not said, you can bet your ass it will not be anyone better.

astonerii on September 21, 2012 at 1:38 PM

No. Actually, QE3 will have no real impact on his campaign. If you listen to what he said about what he was told concerning Bernanke and future QE back in May at the private fundraiser, you will understand why he called Bernanke.

But, you guys keep telling yourselves that only Paul Pot, your fellow Paulistinians, and yourselves are smart enough to understand what is going on with the Federal Reserve and to be very frightened by what Bernanke is doing.

In the real world when has the GOP rolled back, or even held the line on spending? They vote for Tarp and the bailouts, continuing resolutions, increasing the debt limit, enact programs like Medicare Part D and Romneycare and yet you talk about realism?

the former head of Goldman Sachs, John Whitehead, was also the former head of the New York Federal Reserve. And I met with him, and he said as soon as the Fed stops buying all the debt that we’re issuing—which they’ve been doing, the Fed’s buying like three-quarters of the debt that America issues. He said, once that’s over, he said we’re going to have a failed Treasury auction, interest rates are going to have to go up. We’re living in this borrowed fantasy world, where the government keeps on borrowing money. You know, we borrow this extra trillion a year, we wonder who’s loaning us the trillion? The Chinese aren’t loaning us anymore. The Russians aren’t loaning it to us anymore. So who’s giving us the trillion? And the answer is we’re just making it up. The Federal Reserve is just taking it and saying, “Here, we’re giving it.’ It’s just made up money, and this does not augur well for our economic future.

Yes, and it is completely unrealistic to believe that Gary Johnson will be elected President or that there would be enough votes in Congress during his term to dismantle the Federal Reserve even if he did.

the former head of Goldman Sachs, John Whitehead, was also the former head of the New York Federal Reserve. And I met with him, and he said as soon as the Fed stops buying all the debt that we’re issuing—which they’ve been doing, the Fed’s buying like three-quarters of the debt that America issues. He said, once that’s over, he said we’re going to have a failed Treasury auction, interest rates are going to have to go up. We’re living in this borrowed fantasy world, where the government keeps on borrowing money. You know, we borrow this extra trillion a year, we wonder who’s loaning us the trillion? The Chinese aren’t loaning us anymore. The Russians aren’t loaning it to us anymore. So who’s giving us the trillion? And the answer is we’re just making it up. The Federal Reserve is just taking it and saying, “Here, we’re giving it.’ It’s just made up money, and this does not augur well for our economic future.

– Romney, May 2012

Resist We Much on September 21, 2012 at 2:31 PM

“The problem is, is that the way Bush has done it over the last eight years is to take out a credit card from the Bank of China in the name of our children, driving up our national debt from $5 trillion for the first 42 presidents — #43 added $4 trillion by his lonesome, so that we now have over $9 trillion of debt that we are going to have to pay back — $30,000 for every man, woman and child. That’s irresponsible. It’s unpatriotic.” – Barack Obama 2008

Yes, and it is completely unrealistic to believe that Gary Johnson will be elected President or that there would be enough votes in Congress during his term to dismantle the Federal Reserve even if he did.

Resist We Much on September 21, 2012 at 2:33 PM

I agree. Its unrealistic to believe that Gary Johnson will even be elected. Its also unrealistic to believe that Romney and the GOP will suddenly do what they have shown no inclination to do when in power. You have faith in this magical transformation and I see no logical or realistic reason for that.

That quote points out Romney describing the problem. Do you have another quote where he says how he intends to fix the problem if elected?

Ryan’s proposed budgets cuts are NOT a solution, by any means, they just slow down the deficits some, but leave major part of the deficit in place. Unlike other candidates who clearly stated they would eliminate entire federal agencies that are useless and could easily lead to savings of more than $400-500B a year alone and more in the future in the way of no more funding pensions and benefits for the departments eliminated. I won’t even start discussing elimination of public sector union jobs in the process. I have yet to hear either Ryan or Romney say anything on the subject and that means only thing.

I am the last person wanting Hussein to win on Nov 6th, but I am also realistic and base my opinions on FACTS, not on unicorn farts. You guys make it sound like you can draft a 10 year basketball veteran with lifetime average of 2.3 points and 1.8 rebounds per game and expect him to bump it up to 25 and 16 averages.

So far, both Romney camp and GOP insiders already are scaling back their notions of “managing HusseinCare” and deficits, have no idea how anyone, based on FACTS and RECORDS, expects much to change if Romney wins. Yes, we should see some improvement in terms of no more communist ideals implemented via Supreme Court idiots/Congress and Residential Fiats, but overall we’ll still see obsolete federal departments operating and federal graft to continue.

Why do you guys think Graham and Boehner did everything they could (unethical and illegal as it was) to get rid of Newt and his balanced budgets and refusal to support government graft? When Newt was cleared of ALL charges and even paid the price of the drummed up investigation, did Graham and Boehner offer to resign and cover those expenses when their charges were proven bogus? And same crooks are now in charge of things. Yep, things will change if Romney wins. Riiiiight…

Never mind Bush, care to tell us what Boehner and McConnell stand for? I am not defending Bush, he was irresponsible for listening to morons in Congress, but save for Bush we still have same GOP members in Congress who got us in this mess by getting rid of Newt.

Newt = Balanced Budget and limited spending

Boehner = Nothing but ever increasing spending and deficits and no balls to shut down the government when needed. Better to keep over-spending than actually do something to stop it.

3. US bought AIG stock in the bailout to rescue AIG. US has now sold back some of AIG stock to AIG for 20 billion profit. News of profit fed to press to further pump market with air

4. Which derivatives will be purchased, from whom? Purchase of lousy derivatives with dollars printed from air, becomes a slush fund to bail out friends from lousy derivatives and isolate enemies

All QEs create inflation. However, at least prior QEs let the gov become its own lender, while newest QE hands over dollars printed from air to holders of derivatives, and such dollars can be utilized before the depreciation via inflation registers.

Crooks are relying on the fact the EU is ahead of us on the failure scale so some cash is moving into the US to avoid the EU sinkhole, and pumping the numbers. That cash can leave as fast as it enters

Where did many lousy derivatives come from? Some lousy packages came because the Senate via Frank and others forced banks to loan depositor cash to bad risks, so derivatives were created to dump the stinking loans.

This is the biggest ponze scheme yet and from what I see the hope is it will last until November.

No one remembers Carter years and falling into same trap yet again? Gold went up to roughly $900 per ounce back then, its what, about $2500 in today’s money? (New mid size Buick back then was $8000 and now its $28-30,000, just as comparison)

And what did gold fall to afterwards in good economy? I recall sub $300 per ounce and maybe mid $300s per, it did fluctuate.

With interest rates at or near zero, money market funds and most bond funds will not provide anywhere near an adequate return. Short term, you can do a lot worse than simply putting your retirement funds in a low-expense fund that tracks the S&P 500 index, as the $40 billion/month being injected into the money supply will eventually find its way into the market, and it won’t be all that picky about which stocks to buy when it gets there.

I strongly advise against making a drastic decision like liquidating your retirement portfolio until you yourself are certain that it is the only course of action that makes sense. When I see the impending signs of hyperinflation and I am convinced we have reached the point of no return, then I will go ahead and do so with my own. However, we are nowhere near that point. As the article points out, this ‘experimentation’ will play out over a period of time. Stay the course, for now. And by all means keep attuned to what is going on.

A few months back there was some discussion about what to do with the US penny coin given it’s relative worthlessness.

I have the perfect solution if Ben Bernanke continues to run his printing press to prop up the Obama administration with zero interest loans so they can continue their uncontrolled spending.

Just rename the penny coin the dollar and keep on printing and spending.

P.S. You can understand the actions of the political class in all of this – they are just being politicians.

The real traitors are those in the financial sector who know the danger that Fed and government policies pose and either do not speak out or who applaud them based on whatever short term gains they may bring.

” “If this guy prints more money between now and the election, I don’t know what y’all would do to him in Iowa, but we – we would treat him pretty ugly down in Texas. Printing more money to play politics at this particular time in American history is almost treacherous – or treasonous in my opinion…. If they print more money between now and this election, I would suggest [that the Federal Reserve is trying to help President Obama].” Texas Gov. Rick Perry

These words were regarded as over the top at the time, but they turned out to be prescient.